MBS Pricing Snapshot

(Reuters) - U.S. unemployment remains "painfully high" while inflation is not an immediate concern, giving the Federal Reserve plenty of reason to launch a new stimulus last month, a top Fed official said.

Jeremy Stein, in his first keynote speech since becoming a Fed governor in May, said he strongly supported the central bank's decision to embark on a new, open-ended bond buying program.

His comments suggest that despite cries of foul from a handful of hawkish regional Fed bank presidents, Fed Chairman Ben Bernanke had solid backing for the third round of quantitative easing, or QE3, announced in September.

Stein said the plan was needed to boost an economy that was growing too slowly to bring down the nation's unemployment rate, currently at 7.8 percent.

"It appears that the economy is growing at a pace such that, absent policy action, progress on reducing unemployment will likely be slow for some time," Stein told an event at the Brookings Institution. "Given where we are, and what we know, I firmly believe that this decision was the right one."

The overnight was no friend to bond markets, but to look for any causality in the events would be folly considering that trading was extremely orderly and moved in narrow ranges. Things were slightly stronger into Asian hours and slightly weaker in European hours. We'd heard that the S&P downgrade of Spain was a positive factor for US Treasuries, but we're not really seeing a reaction to that, or anything else for that matter.

Clearly (like REALLY clearly), the only "cause and effect" reaction this morning is to the 8:30am data. The leading contender among the 3 reports that printed is the weekly Jobless Claims report that showed the lowest claims in over 4 years. We don't need to express an opinion on the "conspiracy theory" aspects of this (such as, it was fabricated for tonight's Vice Pres debate) in order to see that the first legitimate break below 350k in over 4 years (though July 2012 was close at 352k) is cause for bond markets to be concerned at a potentially improving labor market. But our initial reaction remains: it will be interesting to see next week's numbers, including the revision of today's print.

Whatever the case in the future, things are a bit bumpy here and now with 10yr yields up almost 4bps since the report at 1.73. MBS, for their part, are holding their own fairly well. Fannie 3.0s opened just under yesterday's afternoon highs and are currently trying to hold on to 105-00, which is 6 ticks lower than yesterday's close.

- Imports +1.1 vs +0.7 est.
- Exports +0.8 vs +0.4 est.

U.S. import prices advanced 1.1 percent for the second consecutive month in September, the U.S. Bureau of Labor Statistics reported today, after falling the previous four months. The increase in each of the past two months was led by rising fuel prices. The price index for U.S. exports rose 0.8 percent in September following a 1.0 percent advance in August.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total August exports of $181.3 billion and imports of $225.5 billion resulted in a goods and services deficit of $44.2 billion, up from $42.5 billion in July, revised. August exports were $1.9 billion less than July exports of $183.2 billion. August imports were $0.2 billion less than July imports of $225.7 billion.

In August, the goods deficit increased $1.5 billion from July to $59.3 billion, and the services surplus decreased $0.3 billion from July to $15.1 billion. Exports of goods decreased $2.1 billion to $128.5 billion, and imports of goods decreased $0.7 billion to $187.8 billion. Exports of services increased $0.2 billion to $52.8 billion, and imports of services increased $0.5 billion to $37.7 billion.

The goods and services deficit decreased $0.6 billion from August 2011 to August 2012. Exports were up $2.9 billion, or 1.6 percent, and imports were up $2.3 billion, or 1.0 percent.

In the week ending September 29, the advance figure for seasonally adjusted initial claims was 367,000, an increase of 4,000 from the previous week's revised figure of 363,000. The 4-week moving average was 375,000, unchanged from the previous week's revised average.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending September 22, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending September 22 was 3,281,000, unchanged from the preceding week's revised level. The 4-week moving average was 3,285,250, a decrease of 12,750 from the preceding week's revised average of 3,298,000.